Attention will shift to the UK with the long-awaited 2026 Autumn Budget

Markets

There was action on all fronts yesterday. Let’s start with geopolitics. Ukrainian President Zelensky said that negotiations on a truce remained ongoing after headlines that Ukraine agreed to the US-brokered peace deal. Markets nevertheless reacted positively (equity, EUR, CE FX up; gas/oil down), embracing the progress made since high-level Geneva talks over the weekend. The past two days, the US was also involved with Russian officials in Abu Dhabi, working to a meeting between US chief negotiator Witkoff and his team and Russian President Putin in Moscow likely next week. The Ukraine-Russia situation was one of the topics touched on during a phone call between US President Trump and his Chinese counterpart Xi Jinping who seem back on speaking terms after extending the trade truce by a year at the end of October. Next came (US) eco data with delayed September retail sales and producer prices and up-to-date November Richmond Fed manufacturing index (-15 from -4 vs -5 expected) and consumer confidence. Data disappointed apart from in line with consensus US PPI. Headline retail sales growth slowed from a strong 0.6% M/M in August to 0.2% (vs 0.4% consensus) with all core categories weaker than expected as well. Despite the lower September numbers, real consumer spending was robust over Q3, expected at 3.2% annualized (vs +2.5% Q/Qa in Q2). November consumer confidence crashed from 95.5 to 88.7, the lowest outcome since the Covid-pandemic with the exception of April of this year (Liberation Day). There was an obvious setback in the present situation gauge given the US government shutdown, but the expectations comments fell even further back. The eco numbers put an extra burden on the dollar intraday while pushing US yields lower a first time. A third topic added to those moves: headlines that Kevin Hassett was seen as frontrunner to replace Fed Chair Powell next year. From the remaining shortlist of 5 candidates (Waller, Bowman, Warsh and Rieder), Hassett has the most dovish profile. He advocates aggressive rate cuts, prioritizing growth of inflation control. The bar to reverting to QE under his watch is probably lowest as he closely aligns with Trump’s agenda. Hassett nevertheless stresses the importance of a fully independent central bank. US yields eventually closed around 3 bps lower across the curve with EUR/USD rising from 1.1521 to 1.1570. The short term faith of the US stock market was the final talking point. Key indices tested the October low/100d mavg recently. Dip buyers showed up last Friday and gained strength on Monday and also yesterday despite a negative open (-1% and more for Nasdaq). Main indices eventually ended +0.67% (Nasdaq) to 1.4% (Dow) higher. The S&P 500 tested last week’s high. Taking that out would put fears to bed of a sell-on-ticks pattern being established.

Today’s eco calendar is less exciting. Keep in mind that US markets are closed tomorrow for Thanksgiving and that traded volumes are traditionally lower on (Black) Friday. Attention will shift to the UK with the long-awaited 2026 Autumn Budget. UK assets are extremely sensitive to the topic. From a risk point of view, a lot can go wrong/be considered as insufficient to address the public finances situation.

News and views

The Reserve Bank of New Zealand  cut its policy rate by another 25 bps to 2.25% in a 5-1 vote. (one vote for unchanged). In explaining its current and future actions/intentions, the RBNZ admits that CPI inflation has increased to the top of the 1%-3% target range in Q3, but given spare capacity in the economy it is expected to return to 2% by mid-2026. Economic activity was weak in mid-2025, but the RBNZ sees it picking up. Lower interest rates are supporting household spending and the labour market is stabilizing. A weaker exchange rate is supporting exporters’ income. The RBNZ now sees risks to the inflation outlook as broadly balanced. In its updated forecast, the central bank now expects the policy rate at 2.2% in the first three quarters of next year. The bar for further easing looks very high. The 2-y NZ government bond yield rises by 7.5 bps this morning (2.66%). The kiwi dollar jumps sharply from the 0.5625 area to currently 0.5695.

Australian October CPI rose from 3.6% Y/Y to 3.8% Y/Y. The largest  contributor to annual inflation was housing (5.9%), followed by food and non-alcohol beverages and recreation and culture, both rising 3.2%. Underlying inflation accelerated from 3.2% Y/Y to 3.3% Y/Y. Annual services inflation was 3.9%, up from 3.5%. Inflation rising further above the 2-3% RBA target range leaves the central bank no room to cut the policy rate any further. Markets now even ponder the chances of a rate hike end 2026. The 3-y Australia government bond yield jumps 14 bps (3.88%). The Aussie dollar jumps from the AUD/USD 0.647 area to currently trade near 0.6505.

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